Save More Tomorrow

Among financial experts; it is well known that many people do not have the financial or mental fortitude to cut spending in any capacity to begin their savings strategy. Imagine the below scenario for a moment and see if this resonates with you; even if it does not; stay with me; because I am going somewhere with this.

For example; you come to realize that you need to save for an emergency; or just begin your path to financial independence. You currently earn from employment $1,000 per month after your business partners gets their share of your profits (The IRS). You now realize you have no means of saving; your kids constantly need supplies; your rent/mortgage is unyielding; utility bills keep increasing despite lower usage; the car payments/repairs never seem to stop. Before you know it; you’ve blown your $1,000 before you even get it in your hands. This scenario renders the beginning of savings plan almost impossible.

Enter the Save More Tomorrow plan. Save more tomorrow is a plan designed by by two behavioral economists; Richard Thaler and Schlomo Benartzi. I have never personally utilized this, but for I can see this being a huge benefit to some so I decided to write about it.

The intrinsic belief is that you will not get $1,000 per month forever; at some point; you will get a raise; whether it is through an organic cost of living raise, promotion, or picking up side jobs; at some point you will earn more. So the Save More Tomorrow plan encourages you to think ahead to when that day comes. Let’s say the company you work for has an exceptional year and they were not hammered in taxes. So in March after their filing (Business Taxes are Due March 15). So your company decides to reward workers with a slight bump based on what they believe they can afford. You find out you are getting a 3% pay increase; which would bring your monthly total to $1,030. It is not much; but it is something.

So now that you are collecting $30 more per month; you put that that aside. the $30 is negligible and will not make much difference between before the raise and after, but it will have long term impacts on saving. Save this for 12 months and you get $360. It’s a nice little nest egg to start out with and can start you down the financial independence path. That $360 can turn into $720 the next year and $1,080 the year after; within three year you could have in excess of $1,000 in savings. Now this is the most important part; this does not take into account any additional raises or side income you may receive or compound interest. Both of these are very important factors to consider, but even in the absence of these; you are off to a great start.

Do you think this plan will work for you? It should be easy to commit to your current spending levels and then disregard any increases; it’s not like you will miss it since you never had it in the first place. If you put this plan into effect; let me know how it goes!

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